Tuesday 29 November 2011

Scaling

I had a question to Friday's post. A guy wanted to know which of the recommended books on money management dealt with scaling in. I answered and then thought that the subject needed more information, so I'm posting on it.


Firstly, I don't scale in. At all. Apart from the fact that I am more short term, I don't want to worsen my trade location with a worse average price, larger stop loss and lower profit per contract.


The closest I come to scaling in is by "reloading". By this I mean that as I am scaling out and there is a proper re-entry picture, I'll take my position back to full if I had scaled out some. But the picture has to be as strong as entering a new position. I don't scale in because the market has gone my way. The math just doesn't work for me.


My initial entry will have a size - 25%, 50% 100% depending on the risk - how much it will cost for me to know I'm wrong. Keeping the risk per trade the same is important for me.


I've been playing with trying to put some sense in an algo that runs on Renko charts. A real challenge as Renkos have an invisible wick that hides possible stop hits and targets. So here's the Euro on a Renko chart with wicks so I can better analyse what is happening historically.



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2 comments:

  1. Electronic Local29 November 2011 at 19:38

    Comment from Alex:

    Thanks for this post, sorry I did not make my question clear, I was not talking about scaling in when price go in my direction, but growing a position adding contracts in a determined area when price go against me. I find it very helpfull because I don't have to be too precise with my initial entry and don't have the risk of being shaked out too early when the structure is still in my favor. I understood your scaling in on outside trades but I'm trying to find a good way to do it with inside-out trades too. Do you have any suggestions? could you please share an example?

    Thanks a lot

    Alex

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  2. Electronic Local29 November 2011 at 19:49

    That's great Alex. Inside out trades are a bit different. My position size depends on how far my entry is from the 33 EMA. I don't often double down on those as I want the trade to go in my direction immediately. However, at times, if the original entry was far from the 33 and I get a pullbacl to the 33, I may double down there if the order flow looks right - the push down was very fast - as long as the 33 is steep enough.

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